Taxation of trusts in Zimbabwe: Navigating an increasingly complex landscape

By Delight Ganhiwa

 

 

 

Trusts have long been used as vehicles for wealth preservation, estate planning, and succession management.

 

Families, entrepreneurs, and investors frequently establish trusts to safeguard assets and support the orderly transfer of wealth across generations.

 

However, while trusts offer important commercial and personal advantages, they also give rise to tax obligations that must be properly understood and managed.

 

In Zimbabwe, the Income Tax Act principally governs the taxation of trusts [Chapter 23:06].

 

Trusts are brought within the tax net through the definition of “person” in section 2 of the Act, while section 6 imposes income tax on taxable income received by, accrued to or in favour of any person, including a trust where applicable.

 

In recent years, tax authorities globally have intensified their scrutiny of trusts, and Zimbabwe is no exception.

 

ZIMRA has increasingly focused on ensuring that trusts comply fully with tax legislation, particularly considering concerns that some trust structures may be used to defer or avoid tax.

 

The message is clear: trusts are not merely estate planning tools; they are taxpayers with significant compliance responsibilities.

 

 

 

Why the tax treatment of trusts matters

 

 

 

Unlike companies or individuals, the taxation of trusts is often determined by the legal rights created under the trust deed. Consequently, the wording of a trust instrument can have far-reaching tax implications.

 

One of the most important questions in trust taxation is determining who should bear the tax burden.

 

Depending on the circumstances, tax may be payable by the trust itself, by the beneficiaries, or in certain situations, by the person who originally settled assets into the trust.

 

This makes careful drafting, implementation, and ongoing review of trust deeds essential.

 

 

 

The significance of beneficiaries’ rights

 

 

 

Whether income is taxed in the hands of the trust or the beneficiary depends on the nature of the beneficiary’s entitlement. Section 2 of the Income Tax Act defines a “beneficiary with a vested right” as a beneficiary who is named or identified in the trust instrument and has an immediate and certain right to the present or future enjoyment of trust income.

 

Where beneficiaries possess an enforceable and certain right to trust income, the income will ordinarily be taxable in their hands.

 

Conversely, where trustees retain broad discretion over whether income should be distributed, the trust may remain liable for tax on undistributed amounts.

 

The distinction between vested rights and discretionary interests is therefore not merely a legal technicality; it directly affects the tax consequences arising from trust operations.

 

Trustees should periodically review trust deeds to ensure that the intended tax outcomes continue to align with the actual administration of the trust.

 

When the Settlor Remains Taxable Sections 10(5) and 10(6) of the Income Tax Act contain anti-avoidance provisions aimed at preventing taxpayers from avoiding tax through trust arrangements where they retain control over trust income or assets or otherwise continue to benefit from them.

 

A common misconception is that once assets have been transferred to a trust, the settlor automatically relinquishes all tax exposure relating to those assets.

 

This is not always the case. Tax legislation contains anti-avoidance provisions designed to prevent individuals from shifting income into trusts while retaining effective control over that income or the underlying assets.

 

For example, where a settlor reserves powers to reclaim assets, influence the distribution of income, or benefit indirectly from trust property, the resulting income may still be attributed to the settlor for tax purposes.

 

Accordingly, trusts established primarily for tax-saving purposes, without a genuine transfer of control and benefit, may fail to achieve the desired outcomes.

 

 

 

Registration and administrative compliance

 

 

 

Once a trust has been established, tax compliance begins immediately. Section 53 of the Income Tax Act requires the appointment of a representative taxpayer for a trust, whilst section 54 sets out the liabilities and responsibilities attaching to that representative taxpayer.

 

Trusts are required to register with ZIMRA and appoint a representative taxpayer who will act as the principal liaison with the revenue authority.

 

This individual carries significant responsibility, as failure to meet statutory obligations may result in penalties and, in certain circumstances, personal liability. Administrative compliance extends beyond income tax.

 

Depending on the activities undertaken by the trust, additional tax registrations may be required, including Value Added Tax (VAT), Pay As You Earn (PAYE) and various withholding taxes.

 

Trustees should therefore adopt robust governance procedures to ensure that filing deadlines, tax payments and record-keeping requirements are consistently met.

 

 

 

Commercial activities and indirect taxes

 

 

 

Many trusts own rental properties, farming operations, trading businesses, or investment portfolios.

 

Where trusts conduct business activities, indirect tax obligations become increasingly important.

 

Where a trust conducts taxable activities, it may also become subject to obligations under the Value Added Tax Act [Chapter 23:12], including registration, return submission and the issuance of fiscal tax invoices.

 

For example, trusts carrying on taxable activities above the annual VAT prescribed threshold of $25,000 are required to register for VAT. Once registered, the trust must maintain proper accounting records, issue compliant tax invoices, and submit returns within the prescribed times.

 

Similarly, where employees are engaged, the trust assumes employer obligations, including the withholding and remittance of PAYE.

 

Failure to comply with these obligations can expose the trust to interest, penalties, and reputational risk.

 

 

 

Capital gains considerations

 

 

 

The disposal or transfer of specified assets by or to a trust may trigger tax consequences under the Capital Gains Tax Act [Chapter 23:01].

 

Transfers and disposals of assets within a trust structure often trigger capital gains tax consequences.

 

Tax implications may arise at various stages, including:

 

• when assets are initially transferred into a trust.

 

• when the trust disposes of assets during its existence; and

 

• when trust assets are distributed to beneficiaries or remaindermen upon termination.

 

These transactions should never be treated as routine administrative exercises.

 

Early engagement with tax advisers and ZIMRA, where appropriate, can significantly reduce the risk of disputes and unexpected tax costs.

 

 

 

Growing regulatory scrutiny

 

 

 

Recent administrative developments, including ZIMRA Public Notice 19 of 2026, indicate increased scrutiny of trust arrangements and a heightened focus on tax compliance by trustees.

 

Trusts should therefore maintain comprehensive documentation, including trust deeds, minutes of trustee meetings, accounting records and supporting evidence for all transactions.

 

Where historical errors or omissions are identified, voluntary disclosure may provide an opportunity to regularise affairs before a formal audit commences.

 

 

 

Conclusion

 

 

 

Trusts remain valuable structures for wealth preservation and succession planning. Nevertheless, their advantages can easily be undermined by inadequate tax planning or weak compliance systems. Effective trust administration now requires more than simply safeguarding assets. Trustees must understand the tax implications of their decisions, ensure timely compliance with statutory obligations, and regularly review trust arrangements considering changing legislation and regulatory expectations.

 

As ZIMRA continues to sharpen its focus on trusts, proactive compliance and sound governance will be critical in preserving both the integrity and the intended benefits of trust structures.

 

 

 

DISCLAIMER

 

The views and opinions expressed in this article are those of the author, Delight Ganhiwa, Tax Supervisor at BDO, and do not necessarily reflect the official policy or position of BDO Zimbabwe.

 

This article is intended for informational purposes only and should not be construed as legal, tax or financial advice. Consult mngorima@bdo.co.zw and dganhiwa@bdo.co.zw for advice tailored to your requirements.